This research studies the optimal price charged by a monopoly firm when it is facing reference-dependent consumers (Kőszegi and Rabin, 2006). In the model, a consumer’s total utility from purchasing a good consists of intrinsic utility and gainloss utility, the latter of which is determined by an exogenously determined reference point. The firm’s optimal pricing depends on the level of the reference point. In particular, the firm optimally adopts a gain-type pricing strategy when the reference point is low. In this equilibrium, all consumers who purchase enjoy gain utility (gaintype consumers). When the reference point is high the firm optimally chooses a losstype pricing strategy. In this equilibrium, some consumers who purchase incur loss utility (loss-type consumers). Moreover, the firm’s equilibrium profit decreases when the reference point increases. Finally, I discuss various extensions such as selling cost, participation cost and competition.
|Date of Award||1 Dec 2020|
|Supervisor||Tianle ZHANG (Supervisor) & Fuhai HONG (Co-supervisor)|